Mining Monitor (March 2017) · Bullish sentiment took hold of the market, resulting in price rise...

Mining Monitor (March 2017)

Strategic Research Division,

Corporate Research Office

10 March 2017

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

MUFG Union Bank, N.A.

Table of Contents

1. Overview 3

2. Iron Ore 5

3. Coal 8

4. Copper 11

5. Aluminum 14

Mining Monitor | 10 March 2017 2

6. Nickel 17

7. Zinc 20

8. Gold 23

Appendix 26

1. Overview


Takuya Eto

Strategic Research Division,

Corporate Research Office

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.


Mined Commodity Price Trends

The prices of mined commodities moderately increased except coking coal and thermal coal in February 2017.

Some commodities were affected by speculative and political factors.

1. Overview

Mined Commodity Price Trends

The prices of mined commodities

moderately increased except coking

coal and thermal coal in February 2017.

Iron ore price continued to rise mainly

due to increasing Chinese imports with

speculative trading.

Conversely, the prices of coking coal

and thermal coal continued to fall for

three months in a row driven by the

output recovery and the weak demand

with seasonal factors.

The prices of non-ferrous metals

increased moderately in February.

Even among those, the price trend of

nickel turned positive because the

fears of oversupply were removed.

With respect to gold, the price

increased against the backdrop of

uncertainties on Trump administration

and European politics.

In summary, since upward trends of

iron ore and non-ferrous metals were

affected by speculative and political

factors, the price movement should

continue to be monitored closely.

2016

Yr Avg Jul Aug Sep Oct Nov Dec Jan Feb

Iron Ore ($/t) 58 57 61 57 59 73 80 81 88

MoM - 11% 6% -6% 3% 23% 10% 1% 10%

YoY 5% 10% 9% 0% 11% 56% 98% 92% 88%

Coking Coal ($/t) 142 96 114 189 232 300 267 185 161

MoM - 7% 19% 66% 22% 29% -11% -31% -13%

YoY 58% 11% 35% 131% 191% 299% 245% 141% 112%

Thermal Coal ($/t) 65 63 67 72 92 97 85 84 82

MoM - 16% 7% 8% 27% 6% -12% -2% -3%

YoY 12% 6% 15% 26% 74% 83% 63% 66% 60%

Copper ($/t) 4,866 4,869 4,767 4,731 4,748 5,414 5,667 5,753 5,950

MoM - 5% -2% -1% 0% 14% 5% 2% 3%

YoY -11% -11% -6% -9% -9% 13% 22% 29% 29%

Aluminum ($/t) 1,605 1,629 1,639 1,575 1,666 1,737 1,728 1,791 1,861

MoM - 2% 1% -4% 6% 4% -1% 4% 4%

YoY -4% -3% 4% -2% 8% 17% 16% 21% 22%

Nickel ($/t) 9,605 10,263 10,336 10,093 10,260 11,126 10,972 9,971 10,643

MoM - 15% 1% -2% 2% 8% -1% -9% 7%

YoY -19% -10% -1% 1% -1% 20% 26% 17% 28%

Zinc ($/t) 2,091 2,183 2,279 2,292 2,312 2,566 2,665 2,715 2,846

MoM - 8% 4% 1% 1% 11% 4% 2% 5%

YoY 8% 9% 26% 33% 34% 62% 74% 79% 66%

Gold ($/oz) 1,250 1,339 1,338 1,326 1,266 1,237 1,151 1,194 1,235

MoM - 5% 0% -1% -5% -2% -7% 4% 3%

YoY 8% 18% 20% 18% 9% 14% 8% 9% 3%

2016 2017

Source: Bloomberg, The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division

Chloe Lim

Strategic Research Division (Singapore)


2. Iron Ore


February marked the fifth

consecutive rise in average monthly

iron ore price (up 10% MoM) which

reached US$88/ton.

Daily prices picked up post-Chinese

New Year holiday, topped the

US$90/ton mark by mid-February

and stayed above the level by

month-end.

The price rise was driven by Chinese

imports as its port inventories rose

8% MoM to record high levels. This

is despite news of further steel

capacity cuts in China.

In addition, bullish price sentiment

was buoyed by potential strong

global crude steel production

following World Steel Association’s

reported 7% growth for January.

Amid higher supply potentially and

probes into speculative trading

activity in China, iron ore prices are

likely to stabilize in the near-term.

6

Iron Ore Prices and Inventories

Bullish sentiment took hold of the market, resulting in price rise to above US$90/ton and record high Chinese port

inventories.

2. Iron Ore

1) Price Trends

Mining Monitor | 10 March 2017

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China Iron Ore Port Inventory (RHS) Iron Ore Fines 62%, CFR China Import Spot Price (LHS)

($/t) (Mt)


Iron ore prices impacted following reports of probes into speculative activity in Chinese futures market – 1 March, 2017

As reported by Bloomberg, the National Development and Reform Commission (“NDRC”) questioned futures brokers on whether speculation has

distorted commodity futures prices in China amid concerns that the recent price rally will drive producer and consumer inflation higher. Both iron ore

futures and spot markets were hit on 28th February. Iron ore spot price dropped -1% from a day earlier. At the same time, Citigroup Research stated in

its note that total margins in Dalian iron ore contracts rose 3.3 billion Yuan in the last 30 days, signalling increased speculation and clear signs of

Chinese futures driving physical prices.

China think tanks and Reserve Bank of Australia viewed $90/ton as unsustainable – 24 February, 2017

The China Iron & Steel Association, which represents top producers in the largest steel-producing country, said it expected iron ore price to decline

amid high port stock levels. “Prices are rising rapidly,” the group said in a statement on 23rd February, citing comments from members at meeting. It

stated that current prices were likely from speculation. Meanwhile, China Metallurgical Industry Planning & Research Institute forecasted a price range

of US$55-85/ton, averaging US$65/ton for 2017 at a conference in Dalian. These cautious views appeared to be in-line with Reserve Bank of Australia

which expected current price of US$90/ton to fall on expectation of additional production from Brazil as well as the possibility that higher prices may

encourage the return of some output in China.

Anglo American not selling Kumba iron ore operation and coal assets as it returns to profit – 20 February, 2017

Fuelled by surging commodity prices, Anglo American posted its first net profit in five years, a dramatic rebound for the company that only a year ago

was planning to implement a sweeping restructuring plan. It will now hold on to iron ore and coal mines it previously earmarked for sale, after slashing

its debt faster than expected. The wide-ranging operational, cost, capital and portfolio actions set out in 2016 enabled the company to reduce net debt

by -34%. Back in 2015, the company unveiled details of a radical “portfolio restructuring” which included the sale of its coal, iron ore, manganese and

nickel assets to focus only on copper, diamond and platinum to weather the rout in commodity prices and debt reduction.

Brazil and Australia’s iron ore exports to China recorded strong growth in January – 17 February, 2017

Iron ore exports from Brazil rose 15% YoY to 29 million tons in January, driven by additional output from Vale’s S11D mine as well as steady import

demand from China. Brazil’s iron ore exports to China rose 25% YoY to 16 million tons.

Meanwhile, iron ore exports from Australia’s Port Hedland rose 19% YoY to 40 million tons. Its exports to China constituted 86% of total iron ore

throughput in the month.


2. Iron Ore

2) News Flow

Source: Various sources, The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division

William Cheung

Strategic Research Division (Hong Kong)


3. Coal


Global coking coal price continued to

fall in February. The average price

for February was $161/ton, down

12.9% from the previous month.

The price decline was due to output

recovery in Australia and China.

Also, de-stocking by Chinese

steelmakers put further downward

pressure on price.

Global thermal coal price fell slightly

in February, with an average price of

$82/ton. The price decrease was due

to weak Chinese demand as the

heating season comes to an end.

Recently, China announced to ban

coking coal imports from North

Korea. On the other hand, major coal

producers in China agreed to cut

thermal coal output in March/April. It

is worth close monitoring the impacts

of these incidents on supply-demand

balance and prices in coming months

if they successfully implemented.


Coal Prices

Coking coal price continued to fall due to output recovery in Australia and China and de-stocking by Chinese

steelmakers, while thermal coal price decreased due to weak Chinese demand as heating season comes to an end.

3. Coal

1) Price Trends

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Spot Price (Coking Coal) Spot Price (Thermal Coal)($/t)


China coal consumption falls for third year in a row – 28 February, 2017

Coal consumption in China decreased for 3 consecutive years. Based on the preliminary data provided by China’s National Bureau of Statistics, coal

consumption for the country fell by 4.7% year-on-year in 2016, largely due to economic slowdown. Besides, the share of coal in China’s total energy

consumption mix decreased from 64% in 2015 to 62% in 2016. This is in line with China’s energy consumption policy to cut coal usage and promote

natural gas and renewable energy, so as to curb air pollution. In 2016, consumption of renewable energy such as solar and wind power took up 19.7%

of the energy consumption mix in China, up 1.7% from a year earlier.

Cut in coal supply to continue this year – 22 February, 2017

China will continue to cut coal supply in 2017. According to the National Energy Administration of China, the country plans to reduce 50 million tons of

coal capacity in over 500 outdated mines in 2017. The move aims to ensure the long-term profit recovery for the industry as the supply-demand of coal

industry has not been balanced. However, the capacity cut target this year is 80% lower than last year’s target of 250 million tons. Based on the

explanation of China National Coal Association, China has learnt a lesson last year and will take a gradual approach in coal capacity reduction to avoid

significant price fluctuation.

China’s top coal miners push for Beijing to cap output again – 21 February, 2017

China’s major coal miners has requested the Central government to put a 276-day limit on thermal coal output at an industry meeting held on 21

February. These miners has worried about the weakening demand after the peak winter heating season and growing coal supply in the market, which in

turn will have a negative impact on thermal coal price and their profits. The government officials are considering the request and will provide feedback to

these miners later on. Meanwhile, executives from 19 leading coal companies including Shenhua Energy and China Coal Energy agreed to reduce

output to prevent a sharp price decline in thermal coal in March or April this year. In response to this proposal, thermal coal futures in China increased to

$86.1/ton (i.e. RMB562/ton), up 16% since the start of 2017.

China bans coal imports from North Korea in 2017 – 20 January, 2017

China will suspend all imports of coal from North Korea until 31 December 2017. The move came after North Korea tested an immediate-range ballistic

missile and the suspected assassination of Kim Jong-nam in Malaysia. North Korea was the third largest coal supplier of China, accounting for 8.9% of

China’s coal imports in 2016. North Korean coal is mainly used for steel-making or in higher value industries such as ceramics. To maintain the stable

supply, China is likely to import more coking coal from Australia and other western countries as Mongolian miners might have difficulties in ramping up

output significantly due to transportation bottlenecks. Boosted by this policy decision, coking coal futures on the Dalian Commodity Exchange increased

by 2.8% from a day earlier to $180/ton (i.e. RMB1,271/ton) on 20 February.


3. Coal

2) News Flow


Satoshi Kondo

Strategic Research (NY)

MUFG UNION BANK, N.A.

4. Copper


Copper price in February was flat

m-o-m at $5,940/t (+0.2% m-o-m).

Copper price has been on an

upward track since the US

presidential election in November

2016, except during a correction

phase at the end of the year.

In early February, that trend

accelerated due to the strike at the

Escondida mine in Chile, the

world’s largest copper mine, and

supply concerns at Grasberg in

Indonesia, the world’s second

largest copper mine. In mid-

February, price had reached to

$6,150/t, a 21-month high.

The price fell afterwards as a result

of profit-seeking speculative sell-off.

Still, price is at the highest level in

the last 20 month.

Inventories at LME declined while

SHFE warehouses increased due

to seasonal factors related to the

Chinese New Year.


Copper Prices and Inventories

Copper prices ended the month flat, surging on supply concerns and subsequently falling due to speculative sell-off.

4. Copper

1) Price Trends

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LME Inventory (RHS) SHFE Inventory (RHS) LME Spot Price (LHS)

($/t) (Kt)

Source: Bloomberg, MUFG Union Bank, Strategic Research

Strike at Escondida could continue – 22 February, 2017

The strike at BHP Billiton’s Escondida mine in Chile could prolong. The company decided not to exercise its legal rights to hire replacement for striking

workers after 15 days of strike. Instead, the company decided to wait for at least 30 days, at which time the workers can decide individually to exit the

strike by taking the company’s offer. The strike began on February 9, and there are no signs of reaching an agreement any time soon as a government-

mediated talks failed on February 20. On the second day of the strike, the company declared force majeure on copper shipments from Escondida. BHP

is the majority-controller of the mine, and minority interests are held by Rio Tinto and Japanese companies including Mitsubishi Corp. The mine is the

largest copper mine in the world, and based on normal production rates, about 40,000 tonnes of copper was not produced during the strike, which is

equivalent to the annual production of a mid-sized mine.

Anglo American may pull out from El Soldado copper mine in Chile – 21 February, 2017

Anglo American announced that if the company is unable to obtain a permit for a redesign of its operation at El Soldado copper mine in Chile it will pull

out of the mine’s operation. The company is seeking approval for its plan to redesign the mine to solve engineering issues, but the regulators had

rejected the design, siting the potential for a collapse. The operation by the company has been temporarily suspended at the mine. El Soldado produced

36,000 tonnes of copper in 2015, which is not large by the standards of Chile, the world’s top copper producer. However, the halt in operation could

impact the market at the time when the two biggest coper mines (Chile’s Escondida and Indonesia’s Grasberg) has stopped operation. Other

stakeholders of the El Soldado are Chile’s Codelco and Japan’s Mitsui and Mitsubishi.

Freeport may resort to arbitration for damages from Indonesian export ban on copper concentrate – 20 February, 2017

Freeport-McMoRan said that it is considering to seek arbitration for damages over a contractual dispute which has led to operation stoppage at the

Grasberg mine in Indonesia, the world’s second largest copper mine. Indonesia banned exports of copper concentrate from the country effective

January 12, and the Indonesian government and Freeport-McMoRan is yet to reach an agreement on new mining rules. Freeport started to layoff

workers at the company’s local unit and it may lay off more workers. After the five-weeks of export ban, the company said that it is unable to meet

contractual obligations for copper concentrate shipments from the Grasberg mine on February 17, becoming the second large producer in a week to

declare force majeure after BHP Billiton. Subsequently, the company’s Indonesian unit CEO, who was hired in November 2016 for his political

connections to help the company, resigned.

Sumitomo Metal to post a second consecutive year of annual loss due to copper charge – 8 February, 2017

Sumitomo Metal, one of Japan’s top three base metal producers, announced that it will post a second consecutive year of annual loss due to impairment

charge of 79.9 million yen on its Sierra Gorda copper mine in Chile. Originally the company anticipated substantial expansion which would double the

capacity, but the company now expects a smaller expansion after an assessment of the mine’s operation and copper price trends. The company says

that “it will be difficult to recover the full value of the fixed assets”. Executive pay will also be cut as a result of the loss, which amounts to the company’s

biggest loss on a project. Sumitomo Metal has a 31.5% stake in Sierra Gorda. Other stake holders are KGHM Polska Miedz SA (a state-controlled

copper miner of Poland which owns 55%) and Sumitomo Corp (13.5%).


4. Copper

2) News Flow

Source: Various sources, MUFG Union Bank, Strategic Research

Tom Haddon

Strategic Research Division (London)


5. Aluminum


By month end prices gained 6% in

February, following a 7% gain in

January, to finish over $1,900/ton.

Like January, continued speculation

around rumoured Chinese smelter

closures drove the trend.

The rumour, which surfaced in January,

appears to be well founded as the

Chinese Ministry of Environmental

Protection released during February a

draft proposal to limit metals production

facilities during the winter months.

The draft aims to combat pollution from

energy intensive smelters during the

months when demand for coal-burning

central heating is high in China.

According to Thomson Reuters, the

draft proposal would result in 17% of

smelter capacity being shut during the

winter as pollution hotspots overlap with

key aluminum producing provinces of

Shandong, Shanxi, Henan and Hebei.

The proposal is still a draft and no

implementation, if any, would be

expected until Q4’17, however it was

enough to lift prices in February.


Aluminum Prices and Inventories

With over 50% of global production located in China, the apparent desire from the Chinese government to close

capacity on pollution grounds has lifted pricing.

5. Aluminum

1) Price Trends

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LME Inventory (RHS) LME Spot Price (LHS)($/t) (Kt)


China orders aluminum, steel cuts in war on smog – 1 March, 2017

China has ordered steel and aluminum producers in 28 cities to slash output during winter, outlined plans to curb coal use in the capital and required

coal transport by rail in the north, as Beijing intensifies its war on smog, a policy document shows. Producers must cut aluminum capacity by more than

30 percent and production of alumina, an ingredient used to make the metal, by more than 30 percent across the 28 cities. Based on the cuts over three

months, the measures would reduce China's total annual steel output by 8 percent annually and aluminum output by 17 percent, according to Reuters

calculations. China's northeast has battled some of the worst pollution in years this winter as emissions from heavy industry, coal burning in winter and

increased transport have left major cities including Beijing blanketed in thick smog.

Century Aluminum Co Releases Earnings Results – 23 February, 2017

Century Aluminum posted a net loss of $168.5 million in the fourth-quarter of 2016, wider than a net loss of $43.1 million posted a year ago. The results

in the reported quarter were hurt by a $152.2 million of impairment charge related to the Helguvik project in Iceland. For full-year 2016, net loss was

$252.4 million, wider than net loss of $59.3 million in 2015. Sales for the year were $1,319.1 million, down around 32% year over year, affected by

lower prices for primary aluminium and curtailment actions. Century Aluminum's President and CEO Michael Bless stated that the company made

progress on a number of strategic fronts including the sale of the remaining assets at its original operating smelter in Ravenswood, WV. Bless also

noted that Century Aluminum has excellent opportunities in its markets in the U.S. and Europe and the company will remain committed to invest in

modest high return projects not dependent upon the prices of aluminum.

China's giant aluminum machine cranks up again – 21 February, 2017

Global aluminum output was running at an annualized pace of 62.0 million tonnes in January, a new all-time record with the record forged in China.

While primary metal production in the rest of the world fell by 182,500 tonnes on an annualized basis over the course of December and January, it

surged in China. True, Chinese production figures come with a strong health warning, particularly at this time of year, but the underlying trend is

becoming increasingly clear. Smelters are responding to price signals. In Shanghai, the most actively traded aluminum contract is trading above 14,000

yuan per tonne for the first time since November. Excepting last year's late spike, it's the highest price since early 2013. The irony is that part of the

reason for strong pricing is the threat of capacity curtailments in China on environmental grounds. The jury is still very much out on whether that threat

will become a reality but in the short term over-production rather than under-production is a more pressing issue for the aluminum price.


5. Aluminum

2) News Flow


Tom Haddon



6. Nickel


Nickel briefly broke through

$11,000/ton in mid-February before

falling back slightly to $10,900 by

month end, or 10% higher than at the

end of January.

There was widespread expectations

since the Indonesian government

announced the lifting of a ban on

nickel ore exports in January that the

price would be under pressure from

resurgent supply.

However, this was swiftly followed in

early February by the Philippines

extending a crackdown on mining and

suspending production from 20 mines

(to bring the total to 30), of which

around 50% of the country’s nickel

output originates from.

With the Philippines currently providing

the largest source of nickel imports to

China, and Indonesian mines

experiencing a lag returning to

historical levels of production, the

effect of government action so far in

the two countries has been to lift

prices.


Nickel Prices and Inventories

Initial fears of an oversupply from returning Indonesian supply, due to export ban being partially lifted has waned as

the Philippines has increased the number of mines closed due to environmental concerns.

6. Nickel

1) Price Trends

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Glencore sees nickel price rally continuing – 24 February, 2017

Glencore estimates global stainless production in 2016 at over 45 million tonnes, up over 7% on the prior year, including over 24 million tonnes from

China. Globally 300S austenitic production totalled over 25 million tonnes which is a 10% increase versus 2015. Overall Glencore estimates primary

nickel demand in 2016 of 2.05 million tonnes, representing an ~8% increase versus 2015. Due to nickel supply falling on the back of further shutdowns,

the market entered its first material deficit since 2010 enabling global inventories to fall by around 100,000 tonnes. Whilst inventories remain elevated,

Glencore’s outlook is for continued deficits and further draws in primary nickel inventories as demand remains strong.

China's nickel imports mirror shifts in supply chain – 23 February, 2017

Exports of ore to China always drop at this time of year due to the rainy season, which affects both mining and shipping. But China's trade figures for

January showed imports of Philippine nickel ore were still 20 percent lower than last year's level. And the betting is that they will continue trending lower

after the Philippines' feisty environmental minister, Regina Lopez, ordered the closure of over half the country's mines, many of them nickel operations.

China's import picture is also one of growing diversification of supply, not least from Indonesia, the other political wild-card in the nickel supply chain.

And key to that pick-up was the apparent resumption of imports from Indonesia. China bought 123,300 tonnes from Indonesia in January, the highest

monthly tally since April 2014, when Indonesian exports were winding down after the implementation of the export ban. New Caledonia, in particular,

has also emerged as a new ore supplier to China. Imports totaled 492,000 tonnes last year, compared with zero in 2015, and another 108,000 tonnes

entered China last month, the highest monthly total since 2007.

Finland inks $266 million deal to revitalize Europe's largest nickel mine – 12 February, 2017

A large but troubled nickel mine in Finland may be back on the road to profitability thanks to a recent deal that saw commodities trader Trafigura take a

15.5 percent stake. The Finnish government planned to close what was once the European Union's biggest nickel mine, but changed its mind in

November. Instead, the government provided 100 million euros to Terrafame, citing rising nickel and zinc prices. Now the mine has been given an even

bigger vote of confidence, with Trafigura – which describes itself as one of the world’s leading commodity trading and logistics houses – paying 250

million euros (US$266 million) for a 15.5% stake to help complete a planned ramp-up in production. Last year the mine produced 22,575 tonnes of zinc

and 9,554 tonnes of nickel.


6. Nickel

2) News Flow


7. Zinc


Tom Haddon



Zinc prices displayed some intra-

month volatility swinging between

$2,800 – 2,950/ton but eventually

finished the month with little change at

$2,817, a 1% fall compared to end of

January.

The release of the International Lead

& Zinc Study Group (ILZSG) estimates

for December’16 showed that the

supply deficit had shrunk as Chinese

mined output continued to grow.

Further revisions to ILZSG data also

showed that total European and US

demand growth underwhelmed in

2016 despite strong growth in the

automotive sector, cooling bullish

sentiment.

LME inventories also spiked by almost

4% on a single day in mid-February

with analysts pointing to off market

stocks (outside the LME or SHFE

warehouse networks) possibly flowing

back to take advantage of higher

prices. With little market knowledge

about the size of these stocks, it

caused traders to act cautiously.


Zinc Prices and Inventories

The zinc market remains in deficit but some bearish signals have started to appear which stalled the price rally in

February.

7. Zinc

1) Price Trends

0

500

1,000

1,500

2,000

0

1,000

2,000

3,000

4,000

Feb

-09

Ma

y-0

9

Aug-0

9

No

v-0

9

Feb

-10

Ma

y-1

0

Aug-1

0

No

v-1

0

Feb

-11

Ma

y-1

1

Aug-1

1

No

v-1

1

Feb

-12

Ma

y-1

2

Aug-1

2

No

v-1

2

Feb

-13

Ma

y-1

3

Aug-1

3

No

v-1

3

Feb

-14

Ma

y-1

4

Aug-1

4

No

v-1

4

Feb

-15

Ma

y-1

5

Aug-1

5

No

v-1

5

Feb

-16

Ma

y-1

6

Aug-1

6

No

v-1

6

Feb

-17



Zinc Prices Higher, Supported by Chinese Macro Data – 01 March, 2017

In China, the official manufacturing PMI rose to a three-month high of 51.6 in February, compared with the previous 51.3. It is actually quite unusual for

China to see an increase in manufacturing activity in February with many factories closed in the region in the aftermath of the Lunar New Year holiday.

Global zinc stocks across the London Metal Exchange (LME), China and the United States are now at their smallest since 2009 on a seasonal basis.

Available LME zinc stocks tipped below 200,000 tonnes last week for the first time since 2008, having halved over the past four months, equivalent to

less than one week of annual production. Lower mine supply has pushed down treatment charges - the fees that smelters charge to process ore into

zinc - to historic lows of around $30 a tonne. Smelters have been staying alive only because they have been able to cash in on rising prices of metal,

traders said.

China's 2016 zinc concentrate deficit widens to 448,000 mt on environment monitoring – 14 February, 2017

China's zinc concentrate deficit in 2016 is estimated at 448,000 mt, widening from 9,000 mt in 2015, key Chinese zinc producer Tongling Nonferrous

Metals Group's subsidiary Tongguan Jinyuan said in its commodity report. It noted that due to environment monitoring in China, domestic zinc mines'

output growth last year was less than expected, as against high Chinese smelters' operation rates, resulting in a continual fall in domestic zinc

concentrate stocks. Tongguan Jinyuan has forecast China's national zinc concentrate output to rise 200,000 mt year on year to 4.6 million mt in 2017.

The higher volume is attributed to new mines' output in the Inner Mongolia Autonomous Region, Gansu province in Northwest China, as well as in

southwestern China's Sichuan province. China's net zinc concentrate imports for 2017 have been forecast to be 900,000 mt, down 50,000 mt year on

year.

Goldman Sees Metal Rally in Sight on Rerun of '08 China Stimulus – 13 February, 2017

A rerun of China’s massive stimulus during the financial crisis is set to offer another boost to global metals prices, according to Goldman Sachs. Strong

credit expansion has “remarkably bullish” implications for the nation’s metals-intensive industries as fixed-asset investment and manufacturing are

poised to accelerate, the bank said in a report. New lending to the so-called old economy in December and January jumped by 1.1 trillion yuan ($160

billion) from a year earlier, equivalent to more than one and a half years of U.S. President Donald Trump’s mooted infrastructure package, it said. “The

resulting acceleration in metals demand is expected to push the copper market, as well as other base metal markets such as nickel and zinc, into deficit,

leading to inventory draws, a tightening of the futures curve spreads, and higher prices,” the bank said.


7. Zinc

2) News Flow


Satoshi Kondo

Strategic Research (NY)

MUFG UNION BANK, N.A.

8. Gold



Gold Prices, ETF Holdings, and 10Yr US TIPS Yield

Gold price increased for a second consecutive month, amid uncertainties of Trump administration and haziness of

European politics.

8. Gold

1) Price Trends

Continuing on an upward track

from year end 2016, gold prices

continued to rise for the most part

of February, ending the month at

$1,248/oz, up +3.1% m-o-m.

Uncertainties over Trump

administration’s trade and foreign

policies and haziness over

European political situations

ahead of significant elections in

Germany and France, have led

risk-averse investors to buy gold,

a safe haven asset.

Money manager net length at the

COMEX increased for a second

consecutive month, up +8.5% m-

o-m. Gold ETF holdings turned

higher (+3.6% m-o-m).

-2.0

-1.0

0.0

1.0

2.0

3.0

4.010Yr US TIPS Yield (%)

600

900

1,200

1,500

1,800

2,100

2,400

2,700

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Feb

-09

Ma

y-0

9

Aug-0

9

No

v-0

9

Feb

-10

Ma

y-1

0

Aug-1

0

No

v-1

0

Feb

-11

Ma

y-1

1

Aug-1

1

No

v-1

1

Feb

-12

Ma

y-1

2

Aug-1

2

No

v-1

2

Feb

-13

Ma

y-1

3

Aug-1

3

No

v-1

3

Fe

b-1

4M

ay-1

4

Aug-1

4

No

v-1

4

Feb

-15

Ma

y-1

5

Aug-1

5

No

v-1

5

Fe

b-1

6M

ay-1

6

Aug-1

6

No

v-1

6

Feb

-17

(t) ETF Holdings (RHS) Gold Price (LHS)($/oz)

Source: World Gold Council, GFMS, Bloomberg, MUFG Union Bank, Strategic Research

Note: ETF Holdings are expressed in aggregate tons.


8. Gold

2) News Flow

London Metal Exchange cuts revenue-sharing deal with banks – 23 February, 2017

The London Metal Exchange has made a 50:50 revenue-sharing deal with a group of banks to encourage trade in its new gold futures contracts. The

partner banks are Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis and Societe General which have formed a new company, EOS

Precious Metals, along with OSTC and The World Gold Council. The five banks and a proprietary trader have invested several million dollars and have

committed to bring guaranteed minimum levels of trade in the gold futures to receive a half share of the revenue. Currently, over-the-counter business

conducted among brokers, producers, and consumers dominate the gold trade in London, while gold futures trade mainly takes place on CME’s New

York market or Tokyo Commodity Exchange. The LME and its rivals are hoping that tighter regulation of the market will require trades to take place in

centrally-cleared exchanges. Meanwhile, large banks which rely on a wide range of business relationships could lose market share as exchange trading

would provide easier access for smaller players to enter the market.

Barrick’s sale of Super Pit stalls – 17 February, 2017

Barrick Gold, the world’s largest gold miner, has put up its 50% stake in the Kalgoorlie Super Pit, Australia’s largest open-pit gold mine, for sale in July

2016, but the potential buyer, Minjar Gold Pty, a subsidiary of a Chinese real estate developer Shangdong Tyan Home Co. is yet to secure financing

and obtain clearance from Chinese regulators. The other half of the mine is owned by Newmont Mining, who was one of the four bidders for the stake

along with Newcrest Mining, the largest gold producer in Australia, and China’s Zijin Mining Group. Newmont has been in charge of daily operations of

the Super Pit since mid-2015, and the company remains a “viable bidder for the stake”. Minjar Gold has been acquiring or in agreement to acquire gold

mine assets, such as Kirkalocka gold mine project in Australia and Pajingo gold mine from Evolution Mining based in Sydney. Meanwhile, Barrick has

divested interests in several Australian gold mines since 2013, to reduce its debt.

Avnel will stop Malian gold mine production for 18 months – 16 February, 2017

Avnel Gold of Canada will halt production at its Kalana underground gold mine in Mali for 18 months starting in June. The mine has been unprofitable for

years due to depletion of initial reserves and decline in gold prices, but the company continued operation to avoid laying off workers. During the

shutdown, a new processing plant will be built to expand its operation. The larger, open-pit mine has estimated gold reserve of 1.96 million ounces, and

production is expected to resume in January 2019. The new mine’s expected production per year is 148,000 ounces of gold for the initial five years of

mine’s 18-year lifespan with cost of 73 million CFA francs ($117 million).

Source: Various sources, MUFG Union Bank, Strategic Research


Appendix : Mined Commodities Price Forecasts by Strategic Research Division as of 27 January 2017

Yr Avg 1Q (f) 2Q (f) 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)

Iron Ore ($/t) 58 77 72 66 63 60 55 56 52

YoY 5% 60% 29% 12% -11% -20% -14% -6% -5%

QoQ - 9% -6% -9% -4% - - - -

Coking Coal ($/t) 142 179 158 140 128 117 112 107 103

YoY 58% 65% 75% 66% 65% -30% -17% -9% -8%

QoQ - 131% -12% -11% -9% - - - -

Thermal Coal ($/t) 65 81 73 68 66 65 65 64 64

YoY 12% 29% 25% 17% 25% -15% -3% -1% -1%

QoQ - 53% -10% -6% -3% - - - -

Copper ($/t) 4,866 5,119 4,763 4,668 4,617 4,617 4,726 4,904 5,132

YoY -11% 9% 1% -2% -13% -7% 2% 6% 9%

QoQ - -3% -7% -2% -1% - - - -

Aluminum ($/t) 1,605 1,654 1,603 1,584 1,576 1,595 1,644 1,724 1,798

YoY -4% 9% 1% -2% -8% -2% 4% 8% 9%

QoQ - -3% -3% -1% -1% - - - -

Nickel ($/t) 9,605 10,103 9,901 9,852 10,050 10,565 11,101 11,637 11,990

YoY -19% 18% 12% -4% -7% 6% 12% 10% 8%

QoQ - -6% -2% -1% 2% - - - -

Zinc ($/t) 2,091 2,665 2,718 2,746 2,691 2,651 2,611 2,540 2,465

YoY 8% 59% 41% 22% 7% -2% -4% -4% -6%

QoQ - 6% 2% 1% -2% - - - -

Gold ($/oz) 1,250 1,153 1,159 1,168 1,181 1,205 1,223 1,238 1,249

YoY 8% -3% -8% -12% -3% 4% 4% 3% 2%

QoQ - -5% 1% 1% 1% - - - -Source: Bloomberg, The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division, MUFG Union Bank, Strategic Research

2016 2017 2018 2019

Disclaimer


This report is intended only for information purposes and is not intended to constitute an offer or solicitation to buy or sell securities or any

other products. Contents of the report are information as at publish date and are subject to change without notice. This report has not been

prepared to provide legal, taxational, financial, market-judgmental, or any other advises on propriety of any transactions. In taking any

action, each reader is requested to act on the basis of his or her own judgment upon consulting certified lawyers, accountants or other

professionals regarding the accuracy, validity and reliability of information appeared in this report.

Bank of Tokyo-Mitsubishi UFJ is regulated by the Financial Services Authority.

No part of this publication may be reproduced, stored in a retrieval system or transmitted without the prior written permission of The Bank

of Tokyo-Mitsubishi UFJ Limited.

Copyright© 2017 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved.

Publisher：The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division (Corporate Research Office)

2-7-1, Marunouchi, Chiyoda-ku, Tokyo 100-8388, Japan

Contact details for inquiries : Kouichi Akimoto

(TEL：03-3240-5386、e-mail：[email protected])

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